David Einhorn: Elon Musk Should Step Down

Why the guru is calling for the resignation of Tesla's CEO

David Einhorn (Trades, Portfolio) of Greenlight Capital, who is short Tesla Inc. (NASDAQ:TSLA), has been trading barbs with Elon Musk for the last several years. At one point, Musk even sent him a box of shorts.

Today, Einhorn came out swinging and called on the company to notify people who are potentially at risk due to its solar panel issues and for Musk to resign as CEO.

Tesla is down 4.84%, while the Nasdaq Composite has declined 3%.

What is this about?

Earlier this week, Walmart (NYSE:WMT) filed a lawsuit and demanded the electric automaker remove its solar panel installations, which had caused several fires, from over 200 Walmart locations. The retail giant made many allegations in its suit, including the following:

"Tesla is incapable of maintaining solar systems in a safe condition and consistent with the standard of care. Remediating that fundamental deficiency would require, among other things that Tesla overhaul, expand and upgrade its internal resources for providing solar system maintenance services (including through proper hiring, training and supervision of a sufficient number of qualified solar professionals), or that Tesla contract with a qualified third-party provider of those services…"

Today, the companies appear to have made up to some extent as they issued a joint statement saying they were working together to reach a resolution.

But Business Insider published a fresh story on Tesla's solar business on Friday. The media outlet found out about a project called Titan, where Tesla, apparently stealthily, replaced certain parts of its solar installations:

"In the summer of 2018, Tesla initiated a massive undertaking – a stealth replacement of solar-panel parts across the U.S. It was called Project Titan, Business Insider has learned.

The faulty parts in question were connectors – Amphenol H4 connectors – and SolarEdge optimizers. These parts are supposed to regulate the flow of energy and heat to a solar panel, ensuring that as much power goes through the part as possible without overheating. Overheating can lead to a fire."

A spokesperson for Tesla responded to Busines Insider, saying only a small number of connectors experienced failures in excess of standards:

"The person went on to say that Tesla’s software-monitoring applications found that a 'small number' of the connectors experienced failures and disconnections higher than their standards allowed."

The spokesperson also said only 1% of sites with that connector exhibited abnormal behavior.

Einhorn believes Project Titan is over the line. He sees a need for Musk to resign. The investor is short the stock and Musk and his board will likely disagree, but the combination of the Business Insider story and the Walmart lawsuit is not a good look at all.

Meanwhile, Tesla stock trades at 2 times enterprise value-revenue, 21 times enterprise value-Ebitda and there is no price-earnings multiple because it is losing money on a GAAP basis.

The Walmart lawsuit by itself should not be a problem. The parties seem to be talking about an out-of-court resolution already. The reason it could become a major problem is that Tesla's SolarCity subsidiary has about $6.5 billion worth of solar panels installed. Taking both the Business Insider story and Walmart's suit (and experience with fires) into account, there is a chance other sites could be at risk. Because of the scale of SolarCity's installations, fixing or removing even a portion of them could become very expensive. Just as Tesla needs its money to ramp up new products like the Y, improve its autopilot feature and finish its Gigafactory in China.

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